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Prabhu Dayal Chitlangia And Anr. Versus Trinity Combine Associates Pvt.

1999 (4) TMI 631 - COMPANY LAW BOARD

Dated:- 7-4-1999 - S Balasubramanian And A Doshi, JJ. ORDER S. Balasubramanian, Chairman 1. The two petitioners hereinabove, collectively holding 1,900 fully paid equity shares of ₹ 100 each in the issued and subscribed capital of ₹ 10,90,000 constituting about 17.5 per cent, of the subscribed and paid up capital in Trinity Combine Associates Private Limited (for short "the company") have filed this petition under Section 397/398 of the Companies Act, 1956 (for short " .....

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but unfortunately it could not materialise. Since one of the main contentions was about the composition of the board of directors, on January 28, 1998, this Bench passed an order that the company should convene an extraordinary general meeting for election of directors and in the meanwhile the respondents should also take steps to vacate two shops belonging to the petitioners and pay to them the arrears of rent. This order was taken on appeal to the High Court of Rajasthan. 3. In the hearing on .....

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ed, that the civil suit filed by the petitioners in regard to the sale of certain property of the company should be withdrawn by the petitioners. This was not acceptable to the petitioners and as such the efforts to resolve the disputes failed. Thereafter, the arguments of counsel from both the sides on the petition were heard and they were also given the liberty to file their written submissions. 4. Shri Mehta, advocate for the petitioners initiating the arguments submitted that this company is .....

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ough the petitioner-directors received notice for the meeting, no agenda was enclosed with the notice and it was also noticed that the said notices had also been sent to some rank outsiders as "special invitees". When the petitioners reached the venue of the meeting, they were asked to sign the attendance register wherein something had been written in English. The petitioners protested against the same as it was the usual practice of the company to maintain all records in vernacular la .....

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far-reaching decisions alleged to have been taken in that meeting are : (1) Appointment of five additional directors. (2) Release of four shops belonging to respondents Nos. 2 and 3 from lease with the company. (3) Sale of a shop belonging to the company to Smt. Nisha Kothari. (4) Purchase of a house belonging to Smt. Nisha Kothari. 5. According to learned counsel, all along the board meetings used to be chaired only by the father, i.e., petitioner No. 2 and the minutes do not even mention that .....

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to the respondents, he pointed out that the company had taken six partly constructed shops on lease-two each belonging to petitioner No. 1, respondent No. 2 and respondent No. 3. As per the lease agreement, the company was to develop these shops with the right to sub-lease. The lease agreements were valid for a period of three years, with effect from July 21, 1992, and were registered with the Sub-Registrar, Jaipur. The lease period in respect of all the shops was to expire on July 20, 1995. How .....

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e the lessors, the respondents released the shops without taking into consideration the interest of the company. Since, the respondents have acted against the interests of the company for their own personal benefit, counsel submitted that they should be made liable for misfeasance and misuse of their fiduciary position. He also submitted that by not releasing the shops belonging to petitioner No. 1, the respondents have acted in a discriminatory manner and such a discriminatory act on the part o .....

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at a throwaway price of ₹ 7.2 lakhs to one Mrs. Nisha Kothari. Learned counsel further submitted that with a view to implement this prejudicial decision without the knowledge of the petitioners, various steps were taken by the respondents to register the sale. He submitted that while the board was alleged to have taken this decision at 8.30 p.m. on June 26, 1995, stamp papers were purchased on the same day, a new account was opened in the name of the company on June 27, 1995, and the docu .....

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t to a substantial loss of ₹ 20 lakhs by the respondents. He further submitted that the stand of the respondents that there was an "agreement to sell" dated December 28, 1993, allegedly entered into by petitioner No. 2 with Smt. Nisha Kothari is a forged one as no such agreement was ever entered into. Further, this alleged agreement was neither notarized nor registered and as such has no validity in law. Further, counsel submitted that the space left for the date of the board res .....

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at the other director Shri Ramesh Chitlangia had also consented to the same and has also reported to have signed the documents as witness, which is inconceivable, as according to learned counsel the same person, namely, Ramesh Chitlangia could not have been mentioned more than once in different capacities, clearly establishing that the document is a forged one. The only purpose behind this scheme, learned counsel stressed, was that the respondents not only wanted to bestow certain benefits to Ko .....

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feited. Learned counsel further submitted that not only the price of ₹ 20 lakhs was exorbitant but even the commitment to pay the balance amount could not have been honoured by the company as it had no resources at that time. In view of this, due to forfeiture of the advance, respondent No. 2 had put the company into a loss of ₹ 7 lakhs. He further submitted that the sale and purchase of this property were in fact an exchange of a prime property with a dilapidated property resulting .....

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ed to the board, the building purchased measures only 1,125 sq.ft. 9. He also submitted that in the same board meeting, a decision is alleged to have been taken to open a second bank account on the ground that the business Was going to be expanded. This opening of an account, counsel submitted was only to ensure to eliminate the petitioners from signing of cheques as both the petitioners and respondents Nos. 2 and 3 were jointly and severally authorised to operate that account. Having opened the .....

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d meetings, non-finalisation of accounts of the company and getting them audited, and non-holding of annual general meetings. He also submitted that, respondents Nos. 2 and 3, after having gained control of the company have not bothered to carry on the business and as such the business of the company has come to a standstill from June, 1995, onwards. Further, the company has not been able to discharge its liabilities as is evi dent from the fact that for over four years, the company has not paid .....

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granted and the extent of the powers of the Company Law Board. Even though various reliefs have been sought by the petitioners in the petition, in the written brief, learned counsel has sought for the following reliefs : Respondents Nos. 2 and 5 should be removed as directors ; they should be directed to render accounts of the company from 1995 onwards ; they should be directed to pay all the dues as per the lease agreement for their shops leased to the company ; the company should be directed .....

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ents for the purpose of settlement of various family properties and other businesses. He also pointed out that one of the main requirements of Section 397/398 petition is that the petitioner should aver that there are just and equitable grounds for winding up of the company and that such winding up is prejudicial to the interest of the petitioners. However, no such averment has been made in the petition and as such the petition is not maintainable as decided by the Company Law Board in Subhash C .....

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ees and as soon as the possession is obtained, the same will be handed over to the petitioners. 13. As far as the business transacted in the board meeting held on June 26, 1995, he submitted that the meeting was properly convened with due notice to the petitioner directors. No doubt, no agenda was enclosed with the notice but the same is not required as per the provisions of Section 285 of the Act. He further submitted that the notice for the meeting was sent by certificate of posting on July 15 .....

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ere not aware of the various decisions taken in the board meetings held on June 26, 1995. 14. As far as the sale of the shop to Mrs. Kothari is concerned, the same was in pursuance of a sale agreement dated December 28, 1993, entered into with her by petitioner No. 2 in his capacity as a director of the company. Since petitioner No. 2 was delaying the sale and since there was threat from Mrs. Kothari that she would initiate legal proceedings, the board decided to complete the sale in its meeting .....

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g buying and selling of properties, this property was purchased for investment purposes. 16. As far as allegation relating to non-release of the shops belonging to the petitioners is concerned, learned counsel pointed out that the lease period of these two shops was to expire on July 20, 1995, and as such respondent No. 2 had asked petitioner No. 2 whether he was willing to continue the lease, by a letter dated July 14, 1995. Since, there was no reply to this letter the shops were not released. .....

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the fact that in the board meetings held on February 26, 1996, and March 14, 1996, when all these directors were present, petitioner No. 1 chaired these board meetings. However, Shri Mathur pointed out that since they were appointed as additional directors, they ceased to be directors on the day when the next annual general meeting was to be held which was not actually held. Therefore, he submitted that this allegation no longer survives. 18. We have considered the pleadings and arguments of co .....

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down to three issues ; they are-sale of a shop to Mrs. Kothari, purchase of a building and discriminatory treatment given to the petitioners in relation to vacation of shops. All these allegations arise out of the decisions taken in the board meeting allegedly held on June 26, 1995, a meeting in which the petitioner directors did not participate. While the petitioners admit that they received the notice for the meeting and went to the venue for attending the meeting which did not take place, acc .....

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nst the petitioner shareholders. Further, these decisions have been taken even without the same being included in the agenda which should have been sent along with the notice of the meeting. Calling five outsiders to the meeting and appointing five additional directors, all seem to have been done with a view to upset the family control of the management of the company. In a family company like this, utmost good faith and fair play is absolutely essential and any action against these principles h .....

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ter. 20. In regard to the non-vacation of the shops belonging to petitioner No. 2, we are in full agreement with counsel for the petitioners, that the non-vacation of the shop is a clear act of discrimination and a grave act of oppression against a family shareholder. A perusal of the minutes of the meeting of the board on June 26, 1995, indicates that the two shops belonging to petitioner No. 2 given on rent up to May 15, 1995, was to be extended by one more month and that the tenant was to pos .....

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regard. However, even though learned counsel for the petitioners relied on the judgment of the Allahabad High Court in Prakash Timbers P. Ltd. v. Smt. Sushama Shingla [1996] 1 Comp LJ 133, wherein the court held that the power of the Company Law Board to transfer properties is implicit in the exercise of the powers under Section 397/398 read with Section 402 of the Act, to state that we should order vacant possession of the shops, we do not propose to do so for two reasons. One is that the tenan .....

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at the time of vacating the shops belonging to the respondents, the respondents should have paid certain amount towards construction, etc., to the company. We will be giving appropriate directions in this regard later. As far as the purchase of the property from Mrs. Kothari is concerned, the petitioners have not sought for any directions as per the written submission and as such we are not giving any decision on the same especially when she is not a party to these proceedings. 22. Now, regardi .....

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